The industrial sector is the largest emitter of energy- and process-related emissions, and also relies on widely distributed global supply chains. These factors pose unique challenges for the climate-neutral transformation of industry. The need for change is particularly acute in the energy-intensive subsectors of steel, chemicals and cement. Indeed, national, European and global climate ambitions all hinge on the adoption of climate-friendly production processes for these basic materials. To be sure, the transformation of industry also presents distinct opportunities, as it can be an important catalyst of broader decarbonisation, undergirding the development of a renewable hydrogen economy while also advancing carbon capture, utilisation and storage technologies.
Production plants for basic materials have extremely long lifespans. The next major investments by industrial actors will have thus a decisive impact on the achievement of climate neutrality by mid-century. This highlights the need for rapid and resolute political action that harnesses a range of policy instruments, including well-designed regulations; targeted tax and subsidy policy; and market incentives.
Transforming production processes will not be enough. Underlying energy and raw material inputs must also become compatible with climate neutrality. Accordingly, the climate-neutral transformation of industry has important implications for global supply chains. Closely related supplemental challenges include the development of global markets for climate friendly products and the closing of material loops.